Chemtura Corp. (CHMT
) (0.1%) (CHMT - $26.13 - NYSE) is a global developer, manufacturer, and marketer of engineered specialty chemicals. Its products are used as additives, ingredients, or intermediates serving major industries such as agriculture (being sold), building and construction, energy, electrical and electronics, transportation, and general industrial. Since its emergence from Chapter 11 in November 2010 under the leadership of Craig Rogerson, the management team has focused on actively managing its portfolio via investments in three vertical markets (transportation, electronics and energy, and agriculture), while monetizing businesses with below-target long term potential. Management announced the sale of AgroSolutions to Platform Specialty Products (PAH) for $950 million in cash and two million shares of PAH worth $53 million at today’s price of $26.65 for a total consideration of $1 billion, which is at the low end of our expectations of $1 - $1.1 billion. The transaction is expected to close before year-end and will generate net proceeds estimated at $690 million which will be used for share repurchase, including the monetization of PAH within one year of closing and net of debt reduction of $200 million. Combined with the net proceeds from the sale of Consumer Products, we estimate that Chemtura will repurchase approximately 33 million shares, lowering its outstanding shares to 65 million by year-end 2015. Investments in the remaining businesses and potential bolt-on acquisitions will be financed with cash flow from operations. The remaining operations, Industrial Performance Products (petroleum additives and urethanes), and Industrial Engineered Products (bromine and flame retardants and organometallics) are expected to grow revenues via innovations, share gain, and geographic expansion, while the bottom line will benefit from internal actions. In addition, market demand for flame retardants used in electronics and insulation foam applications is showing signs of improvement. We estimate that the “new Chemtura” (exclusive of consumer and agriculture) will generate EPS of $1.45 and $1.85 in 2015 and 2016, respectively. The EPS calculation is based on the already mentioned decline in the shares outstanding. We calculate PMVs of $31 and $40 for 2015 and 2016, respectively.
From Mario Gabelli
)’s The Gabelli Asset Fund Second Quarter 2014 Shareholder Commentary
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